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Getting Started in Real Estate Investing with an IRA

getting started in real estate investing

Looking at getting started in real estate investing with your retirement funds? With a little know-how, some hard work and the right custodian, it’s not that difficult. You can choose to invest directly or indirectly. It all depends on how much work (and money) you want to put into it. The number one benefit of using an IRA to invest in real estate are the tax advantages the plan offers. In the following, we’ll tell you everything you need to know for getting started in real estate investing.

Getting Started in Real Estate Investing

First thing’s first – you need the right type of IRA to begin. Most plans you can open at your local bank or online financial institutions don’t cater to the real estate investor. In fact, alternative investments, like real estate, aren’t even offered. That’s why you need the right custodian, such as IRA Financial. With our checkbook control structure, the investment decisions are in the palm of your hands. Self-directing your IRA has never been easier. Reap all the benefits of the traditional Self-Directed IRA (tax-deferred earnings) or the Self-Directed Roth IRA (tax-free distributions).

Once your Self-Directed IRA is established and funded, it’s time to decide the types of investments you want to make. Essentially, this boils down to how much you are comfortable investing with and how hands-on you want to be. Is this going to be a side gig or a full-time job? Lastly, do you prefer a steady flow of income or looking for the quick turnaround of a flip house? Read on to see your options.

Types of Real Estate Investing

As we mentioned earlier, there are two ways of real estate investing – Direct and Indirect. Directly investing in a property takes a bit more work and generally more funds. Choosing to invest indirectly costs a lot less and the returns aren’t as predictable. Let’s talk about each one and see where you fit in.

Direct Investing

Direct real estate investing is probably the most popular and well known way of investing. This involves researching a property, financing it and then using it as an investment. The two most popular ways to profit from a real estate investment are renting it out or flipping it. Both have their advantages. A rental property provides you with a steady stream of income. Generally, you don’t need to put a lot of capital into the property once you purchase it. On the other hand, a “fix and flip” can provide you with a quick return. However, more capital is needed for renovations and repairs.

Whichever type of property you decide on, you must do the legwork. Analyzing all the factors is crucial. As they say, location is everything. Even if you find a great property at a great price, if it’s not in a desirable location, you might be sitting on it for a long time. When getting started in real estate investing, especially direct investing, you must do your homework. Assessing the value of the property, along with comparables in the area is paramount. If the profit from the investment is not worth the time and effort you put in, it’s best to look elsewhere.

Indirect Investing

Indirect real estate investing is for those looking for a more hands-off approach. The most popular way to do this is through REITs, or real estate investment trusts. You can simply invest your IRA funds in a mutual or exchange-traded fund that invests in real estate. These funds can be invested in a multitude of real estate investments. These include hotels, apartment complexes and retail centers. The major benefit is that you don’t need to lay out hundreds of thousands of dollars when you opt for indirect investments. Further, you can spread your investments across several different funds.

A growing trend in real estate investing is through crowdfunding. Similar to traditional crowdfunding investments, you can invest small stakes into real estate crowdfunding projects. Again, this allows for more diversity than direct investing. Further, it allows you to broaden the scope of your investments. Generally, when you buy a property, you need to be near it to ensure all is well. On the other hand, crowdfunding and other indirect investments allow you to invest all over the country (and even the world!).

Getting Started in Real Estate Investing with an IRA – Points to Consider

When using a Self-Directed IRA to invest in real estate, there are few points to consider. First and foremost, you must be prepared. You can’t go into real estate investing on a whim. Remember, this is your nest egg you are investing with. You must do everything you can to ensure you put yourself in the best place to earn a profit. Deciding to take on a project without any knowledge could ruin your retirement.

Next, it’s never a good idea to mix IRA funds and personal funds to make an investment. The IRS rules are strict in that the IRA should be the only entity that benefits from an investment. Personally benefiting from an IRA investment can lead to severe penalties and the disqualification of your Self-Directed IRA. You will no longer reap the tax advantages of the plan.

There is also a little known tax you should be aware of – Unrelated Business Taxable Income, or UBTI. This tax applies depending on how you use your IRA to invest in real estate. First, if you use a loan to purchase a property, the amount financed will be taxed. Therefore, whatever percentage of the property was bought with a loan will be taxes when the property is sold. Secondly, if you perform multiple real estate transactions with your IRA, you may be subject to the tax. Buying and selling a few properties annually is generally safe. However, if you perform dozens of these transaction, it may be considered a business. The UBTI tax will then kick in which could eat into your profits.


Getting started in real estate investing with a Self-Directed IRA can be quite exhaustive if you are new. But the benefits are worth the effort. If you have real estate experience already, you are ahead of the curve. Again, you cannot go into this lightly. However, this can be said about most investments. The great thing about real estate, is that everyone needs a place to live and a place to work. Moreover, it’s arguably the most diverse asset class around.

If you have any questions about getting started in real estate investing, feel free to get in touch with one of our Self-Directed IRA Experts @ 800.472.1043. Did you know you can use our new and improved app to streamline the process?!


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